So, you are in the middle of unmanageable credit card debts. Now, you want to get out of this unbearable financial situation. It's challenging to move forward with such a high rate of interest. So, what's your ideal turn? It will be effective to opt for the balance transferring of your credit cards. If you want money savings on sky-rocketing interest charges, a well-planned balance transfer will help you.
However, make sure you plan your financial matters correctly to get out of deeper outstandings. If you execute several balance transfers, it simply means your bad debt management.
It will be wise to first concentrate on paying down all of your balances; otherwise, you will have to pay a substantial amount on the interest. If you have already thought of making a balance transfer your debt-controlling strategy, go through the blog to learn about its advantages and disadvantages.
Advantages of Balance Transfer
There are many instances where people opt for a balance transfer to save money but end up adding more debt to the existing one. It means taking the wrong path is common. Thus people don't get succeeded. First of all, determine whether it will be right for your situation to consider a balance transfer.
Saving Money On Interest Payment
The prime benefit of opting for a balance transfer is the possibility of preserving money on interest. Some credit card companies offer balance transfer cards and 0% APR for a specified period.
Suppose you can transfer your balance from a high-interest card to such card and can disburse the balance fully within such period. You don’t have to pay a single interest. You can also benefit by opting for a balance transfer credit card with a low APR.
Enjoying Better Perks
If you notice that your current credit card doesn't offer many benefits, you can switch your balance to a different credit card that will allow you to earn rewards, cashback offers, and zero annual fees.
For instance, if you love travelling and travel frequently, you can transfer your credit card balance to a special credit card where you get qualified to pay a low-interest rate. You will encounter many zero annual fee credit cards that offer attractive features like complimentary insurance coverage, foreign settlement fees, additional warranty, etc.
Consolidating Your Debt Payments
When paying through multiple credit cards seems exhausting, you can combine all the balances from the credit cards and transfer them into one card. You can do it only if your transferred balance is lower than the new card's credit limit.
You will have to pay for only one credit card monthly. You don't have to keep records of multiple due dates nor have to make numerous payments in a month. Consolidating debt helps in the effective management of payments. Experts suggest reviewing the new card's fees and APR to prevent unnecessary hassle.
Improving Credit Score
Opting for a new balance transfer credit card along with your overall credit will possibly lower your credit utilization ratio. This ratio refers to your used credit in comparison with the total credit. The credit utilization ratio must be below 30% to help build a robust credit score.
Disadvantages of Balance Transfer
Need to Maintain an Excellent Credit
Most credit card companies offer balance transfer credit cards only to those who can have maintained good credit. Therefore, it is really hard for people to maintain a fair credit who wants to transfer their balance to reduce their debt amount.
APR Offerings for a Certain Period
Once a person transfers his balance to a new credit card in the hope of getting 0% APR, he must pay off all his outstanding balances within the stipulated time to avoid paying the regular APR. This special offer generally ranges between six and twenty months.
Possibility of Adding More Debt
From a casual view, a balance transfer seems to pay off all the debt and save on interest. However, the real scenario is something different. If anyone cannot address the issue from the core, they would add more debt to the existing credit card. Without proper financial planning, you will neither be able to pay off your current debt nor save money.
Adding Cost on Balance Transfer Charge
Good things never come for free, and there’s no exception in a balance transfer. When you transfer your balance to a new credit card, you are likely to pay an additional balance transfer charge, i.e. between 3 to 5% of your transferred amount. Therefore, make sure you consider these fees before you decide on a balance transfer. Instead of saving money, you will end up with additional expenses.
Hurting in Credit Score
If your new balance transfer card comes with a lower limit than the existing one, and you opt to close your existing card post-transfer, your credit utilization ratio will increase. Thus, opting for a new card or closing an old card can drop your credit score.
So, is Balance Transfer a Fair Decision?
Balance transfer will be a good idea if the user has already planned a clear strategy for payment. Since balance transfer allows savings on interest charges, this can be used with 0% or low APR offerings to get all the possible benefits.